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Employee Compensation And Turnover Essay

2640 words - 11 pages

Employee Compensation and Turnover

Often, "an excessively high turnover rate compared to the industry standard is a symptom of problems within the organization" (Gomez-Mejia, Balkin & Cardy 1998). Managers must realize that "high staff turnover can prove costly, particularly to small businesses" (Oliver 1998). Strategies have to be crafted that will minimize turnover and the costs associated with it. Although strategies used to retain employees can be expensive, turnover is a cyclical problem that usually becomes more expensive in the long run (Brannick 1998). Costs that organizations face when employees depart include recruitment costs associated with finding replacements, selection costs associated with interviewing, relocating and screening, training costs and separation costs such as severance pay (Gomez-Mejia, Balkin, & Cardy 1998). Managers can reward employees with tangible or intangible compensation (Brannick 1998). Tangible compensation includes salary increases, benefits, bonuses, potential for advancement and stock options (Brannick 1998). The good news for managers is that there are also inexpensive strategies that can be implemented to make and keep employees happy with their jobs. Intangible compensation includes respect, feedback, recognition, the opportunity to be heard and encouragement (Armentrout 1998). All of these means of compensation can be effective if managers take the time to get to know their employees and what makes them happy. The human resource function, compensation management is at the center of all of these issues.


Employee turnover rate is defined as the measure of the rate at which employees leave a firm (Gomez-Mejia, Luis, Balkin & Cardy 1998). Turnover has become a serious dilemma facing organizations today (Davison 1997). Consistent problems with turnover can lead to significant costs to organizations (Auxillium 1998). The loss of productivity is detrimental as it often takes 45 to 60 days to refill a position (Auxillium 1998). There are costs associated with training new employees (Auxillium 1998). Estimates from the U.S. Department of Labor indicate the significant impact employee turnover has on the financial performance of an organization. According to these estimates, "it costs a company one-third of a new hire?s annual salary to replace an employee" (Brannick 1998). For an employee whose wage rate is only six dollars per hour, it costs a company $3,600 when he or she departs (Brannick 1998). The fast-food industry has done their own calculations on the costs associated with turnover and has found that it costs $500 to replace a crew person and $1,500 to replace a manager (Brannick 1998). A fast-food operation with 500 total employees and 100 percent turnover faces annual turnover costs of $250,000 (Brannick 1998). Managers in the trucking industry estimate the cost of replacing one driver to be between $3,000 and $5,000 (Brannick 1998). These estimates are an...

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